Weakening political connections by means of regulatory reform: Evidence from contracting out water services in Spain
One area of public policy where rent-seeking and favoritism is relatively common is the contracting out of public services. Private firms can improve their chances of obtaining contracts by bribing politicians or public servants and funding political parties. In the same vein, firms can gain access to policymakers by hiring influential former politicians—a practice commonly referred to as revolving-doors. In this paper, we use information from 922 privatizations of water services in Spanish municipalities between 1984 and 2016 and multinomial logistic regression techniques to study the association between specific firms securing contracts and the political parties ruling the municipalities. We find robust statistical evidence of an association between the Popular Party (Partido Popular or PP) and the firm Aqualia, part of the large Spanish holding company Fomento de Construcciones y Contratas (FCC), which is known to have funded the Popular Party. Furthermore, former PP politicians have been appointed to top positions in the FCC Board of Directors. However, this relationship weakened after the institutional reform of 2007 on public procurement and financing of political parties, which is empirically evaluated in this paper.
KeywordsRent-seeking Political connections Privatization Urban water services Spain
JEL ClassificationD73 L33 L95
We acknowledge financial support from the Spanish Ministry of Economy and Competitiveness (ECO2016-76866-R and ECO2016-75237-R), the Catalan government (SGR2014-325), the Valencian government (PROMETEOII/2014/053), and the Andalusian government (P11-SEJ-7039). None of the funding sources had, however, any involvement in any stage of this research. Moreover, we are thankful for useful comments and suggestions received from the referees and the Editor, and also when this paper was presented at EPPP-Université Paris I- Sorbonne, and Universidade do Minho.
- Akin, O. Coleman, N. S., Fons-Rosen, C., & Peydró, J. L. (2016). Political connections: Evidence from insider trading around TARP. Barcelona Graduate School of Economics. Working Paper 935.Google Scholar
- Ariño, G. (2009). La financiación de los partidos políticos. Madrid: CINCA.Google Scholar
- Bel, G., Estache, A., & Forcaud, R. (2014). Transport infrastructure failures in Spain: mismanagement and incompetence, or political capture? In T. Søreide & A. Williams (Eds.), Corruption, grabbing and development. Real World Challenges (pp. 129–139). Cheltenham: Edward Elgar.Google Scholar
- Dal Bó, E., & Rossi, M. A. (2007). Corruption and inefficiency: Theory and evidence from electric utilities. Journal of Public Economics, 91(5–6), 939–962.Google Scholar
- EC (European Commission) (2014). EU anticorruption report. Brussels.Google Scholar
- FCC (2015). Informe Anual de Gobierno Corporativo. Ejercicio 2014. Madrid, Fomento de Construcciones y Contratas, 27 February 2015.Google Scholar
- Greene, W. (2012). Econometric Analysis (7th ed.). Upper Saddle River, NJ: Prentice Hall.Google Scholar
- GWI. (2013). Corruption taints Spanish concessions market. Global Water Intelligence, 14(3). Retrieved 28 Mar 2015, from http://www.globalwaterintel.com/archive/14/3/general/corruption-taints-spanish-concessions-market.html.
- La Caixa. (2014). Anuario Económico de España, 2013. Barcelona: Servicio de Estudios La Caixa.Google Scholar
- Miralles, A. (2009). A duration model analysis of privatization of municipal water services in Spain. Revista de Economía Aplicada, XVI, I(50), 47–75.Google Scholar
- Moffa, L. Á. B. (2009). La selección del contratista en el sector público: criterios reglados y discrecionales en la valoración de las ofertas. Revista de Administración Pública, 180, 21–57.Google Scholar
- Razquín, M. M. (2008). Selección de contratistas y adjudicación de contratos: (con especial referencia a la administración local. Revista de Estudios de la Administración Local y Autonómica, 306, 31–66.Google Scholar
- Schwab, K. (2016). The Global Competitiveness Report 2016–2017. World Economic Forum.Google Scholar
- Stanley, K. D., Loredo, E. N., Burger, N., Miles, J. N., & Saloga, C. W. (2014). Business bribery risk assessment. Santa Monica, CA: RAND Corporation.Google Scholar
- Transparency International (2014). Corruption perceptions index 2014. Transparency International. Berlin, Germany. Retrieved March 28, 2015, from https://www.transparency.org/cpi2014/results.
- Tullock, G. (1972). The purchase of politicians. Western Economic Journal, 10(3), 354–355.Google Scholar